Distressed investing gurus at Leucadia (LUK) are certainly seeing opportunities these days. They bought investments at distressed prices, just to see these investments become even more distressed. Leucadia’s own shares have also declined to multi-year lows. This is a review of Leucadia’s investment portfolio.

Leucadia is often referred as mini-Berkshire; it is run by Chairman Ian Cumming and President Joe Steinberg. Contrary to Warren Buffett's favorite investment strategy, Leucadia is not looking for good companies at fair prices and holding them “forever”. They concentrate on deep value investments in distressed or out of favor assets, and stay within their circle of competence which includes, among others, telecommunications, lending/banking, real-estate and mining industries. Once they control the company they turn it around and sell it for what have been historically excess returns.

Leucadia National has delivered a return on equity of above 21% per year over the past 30 years. The company’s stock has gained 33% per year in average, compared to the S&P500’s gain of 9.9% per year in the same period.

Lately Leucadia’s shares are traded at 4-year lows, dropped almost 70% from its highs at $50s. Is it a good opportunity to get into this great investment vehicle?

Here we like to review the investment portfolio of Leucadia’s investment portfolio. Below is from the latest quarterly filing of Leucadia.

In April 2008, the Company sold to Jefferies Group, Inc. (JEF) 10,000,000 of the Company's common shares, and received 26,585,310 shares of common stock of Jefferies and $100,021,000 in cash. The Jefferies common shares were valued based on the closing price of the Jefferies common stock on April 18, 2008, the last trading date prior to the acquisition ($398,248,000 in the aggregate).

Including shares acquired in open market purchases during 2008, as of September 30, 2008 the Company owns an aggregate of 48,585,385 Jefferies common shares (approximately 30% of the Jefferies outstanding common shares) for a total investment of $794,400,000. At September 30, 2008, the Company's investment in Jefferies is carried at fair value of $1,088,300,000, with unrealized gains of $271,100,000 and $293,900,000 for the three and nine month 2008 periods, respectively, included in income related to associated companies in the consolidated statement of operations.

Subsequent to September 30, 2008, the aggregate market value of the Company's investment in Jefferies declined to $773,500,000 at November 3, 2008.

Fortescue Metals Group Ltd ("Fortescue")

Non-current available for sale investments include 277,986,000 common shares of Fortescue Metals Group Ltd ("Fortescue"), representing approximately 9.9% of the outstanding Fortescue common stock. Fortescue is a publicly traded company on the Australian Stock Exchange (Symbol: FMG), and the shares acquired by the Company may be sold without restriction on the Australian Stock Exchange or in accordance with applicable securities laws. The Fortescue shares have a cost of $246,300,000 and market values of $1,026,500,000 and $1,824,700,000 at September 30, 2008 and December 31, 2007, respectively.

The market value of the Company's equity investment in FMG has decreased by $798,200,000 since December 31, 2007, which has a significant impact on the Company's reported shareholders' equity and non-current investment portfolio. The decline in FMG's market value continued after the end of the third quarter; as of November 3, 2008 the Company's position in FMG had an aggregate market value of $560,300,000.

As of September 30, 2008, the Company had acquired approximately 28% of the outstanding voting securities of AmeriCredit Corp. (ACF), a company listed on the NYSE (Symbol: ACF), for aggregate cash consideration of $405,300,000 ($70,100,000 was invested as of December 31, 2007). ACF is an independent auto finance company that is in the business of purchasing and servicing automobile sales finance contracts, predominantly to consumers who are typically unable to obtain financing from other sources. ACF has historically funded its auto lending activities through the transfer of loans in securitization transactions.

At September 30, 2008, the Company's investment in ACF is carried at fair value of $331,400,000; income related to associated companies includes unrealized gains (losses) resulting from changes in the fair value of ACF of $51,600,000 and $(73,900,000) for the three and nine month periods ended September 30, 2008, respectively. At December 31, 2007, the Company's investment in ACF was classified as non-current investments and carried at fair value of $71,500,000.

Subsequent to September 30, 2008, the aggregate market value of the Company's investment in ACF declined to $206,100,000 at November 3, 2008.

Cresud is an Argentine agricultural company involved in a range of activities including crop production, cattle raising and milk production. Cresud's common shares trade on the Buenos Aires Stock Exchange (Symbol: CRES); in the U.S., Cresud trades as American Depository Shares or ADSs (each of which represents ten common shares) on the NASDAQ Global Select Market (CRESY.pk).

The Company also acquired a direct equity interest in Cresud for an aggregate cash investment of $54,300,000. The Company owns 3,364,174 Cresud ADSs, representing approximately 6.7% of Cresud's outstanding common shares, and currently exercisable warrants to purchase 11,213,914 Cresud common shares (or 1,121,391 Cresud ADSs) at an exercise price of $1.68 per share. The warrants expire on May 22, 2015 and are exercisable during a six day period from and including the 17th to the 22nd day of each February, May, September and November. The Company's direct investment in Cresud is classified as a non-current available for sale investment and carried at fair value.

As a result of significant declines in quoted market prices for Cresud and other investments of IFIS, combined with declines in worldwide food commodity prices, the global mortgage and real estate crisis and political and financial conditions in Argentina, the Company has determined that its investments in IFIS and Cresud ADSs were impaired at September 30, 2008. As of September 30, 2008, the fair value of the Company's investment in IFIS was determined to be $41,800,000, resulting in an impairment charge of $36,100,000 for the three and nine month periods ended September 30, 2008. This charge is in addition to the Company's share of IFIS's operating losses, which were $8,100,000 and $8,400,000 for the three and nine month periods ended September 30, 2008, respectively. As of September 30, 2008, the fair value of the Company's investment in Cresud ADSs was determined to be $35,300,000, resulting in an impairment charge of $14,300,000 for the three and nine month periods ended September 30, 2008.

Inmet Mining Corporation ("Inmet")

Non-current other investments include 5,600,000 common shares of Inmet Mining Corporation ("Inmet"), a Canadian-based global mining company traded on the Toronto Stock Exchange (Symbol: IMN), which have a cost of $78,000,000 and carrying values of $260,700,000 and $78,000,000 at September 30, 2008 and December 31, 2007, respectively. As more fully discussed in the 2007 10-K, the Inmet shares are restricted and may not be sold until August 2009 or earlier under certain specified circumstances.

Company Liquidity

In addition to cash and cash equivalents, the Company also considers investments classified as current assets and investments classified as non-current assets on the face of its consolidated balance sheet as being generally available to meet its liquidity needs. Securities classified as current and non-current investments are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a short period of time. As of September 30, 2008, the sum of these amounts aggregated $2,606,600,000. However, since $744,500,000 of this amount is pledged as collateral pursuant to various agreements, represents investments in non-public securities or is held by subsidiaries that are party to agreements which restrict the Company's ability to use the funds for other purposes (including the Inmet shares), the Company does not consider those amounts to be available to meet the Parent's liquidity needs. The $1,862,100,000 that is available is comprised of cash and short-term bonds and notes of the U.S. Government and its agencies, U.S. Government-Sponsored Enterprises and other publicly traded debt and equity securities (including the Company's $1,026,500,000 investment in Fortescue common shares). The investment income realized from the Parent's cash, cash equivalents and marketable securities is used to meet the Parent company's short-term recurring cash requirements, which are principally the payment of interest on its debt and corporate overhead expenses.

From time to time in the past, the Company has accessed public and private credit markets and raised capital in underwritten bond financings. The funds raised have been used by the Company for general corporate purposes, including for its existing businesses and new investment opportunities. However, given the current ongoing turmoil in the credit markets, if the Company were to try to raise funds through an underwritten bond offering it would be at a higher interest rate than in the past, or with terms that the Company may not find acceptable. The Company has no current intention to seek additional financing, and will rely on its existing liquidity to fund corporate overhead expenses, corporate interest payments and for investing opportunities. The Parent's senior debt obligations are rated two levels below investment grade by Moody's Investors Services and one level below investment grade by Standard & Poor's and Fitch Ratings. Ratings issued by bond rating agencies are subject to change at any time.

I think Berkowitz is just allocating some of these shares to separate accounts. Below is a cut-and-paste of the footnotes on the Form 4 filing:

1. These securities are owned by Fairholme Funds, Inc., and therefore are deemed to be beneficially owned by Fairholme Capital Management, L.L.C., the investment manager of Fairholme Funds, Inc., and Bruce R. Berkowitz, the managing member of Fairholme Capital Management, L.L.C.

2. These securities are owned by Bruce R. Berkowitz, who is a Reporting Person.

3. Due to a distribution of assets, ownership of these securities was transferred from one of Fairholme's private funds to its investors. The investors subsequently placed the securities in separately managed accounts advised by Fairholme Capital Management, L.L.C.

4. Bruce R. Berkowitz ("Mr. Berkowitz") is the managing member of Fairholme Capital Management, L.L.C., a Delaware limited liability company ("Fairholme," and together with Mr. Berkowitz, the "Reporting Persons"), which serves as the general partner, managing member, investment manager or investment adviser to several investment funds, both public and private, and separately managed accounts that own such reported securities. The Reporting Persons each disclaim beneficial ownership in the securities reported on this Form 4 except to the extent of their pecuniary interest, if any, therein, and this report shall not be deemed to be an admission that the Reporting Persons are the beneficial owners of such securities for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, or for any other purpose.

5. Due to a distribution of assets from one of Fairholme's private funds to its investors, these securities are no longer deemed to be beneficially owned by the Reporting Persons.

6. These transactions were executed on behalf of separately managed accounts to which Fairholme acts as investment adviser.

Cummings and Steinberg never cease to amaze me. Not hearing much about how they are going to work their magic on ACF, but that will really move the needle when they return to health. Adequate capital can instantly improve the ratings agencies assessment and when that happens, securities re-price.

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